A Beverly Hills Bailout?

[Geee]

Weekly Standard:

Residents of California do not have nearly enough insurance to cover rebuilding costs following a big earthquake. One proposal to deal with this problem, a bill before Congress called the Earthquake Insurance Affordability Act, would not make things better and would drain billions from federal coffers. The proposal—a Democratic plan that has received positive attention from California conservatives like Rep. John Campbell—is a new and even worse version of the unworkable, costly, but continually popular idea that the federal government should start writing property insurance for individual homes. It’s a terrible plan that does not even deserve a hearing.


At its core, the bill that Democratic senators Barbara Boxer and Dianne Feinstein have proffered would provide federal loan guarantees to the Golden State’s government-run, privately funded California Earthquake Authority (CEA). (Although not mentioned in the legislation as benefiting from it, no entity besides CEA qualifies as eligible under the bill’s language.) These loan guarantees would reduce CEA’s need to buy insurance of its own (reinsurance) on the private market and, in theory, let it cut rates. In return for the guarantees, CEA would supposedly pay fees to the federal government that would cover costs. With lower rates, more Californians would presumably buy earthquake insurance and thus have more money to rebuild following a big quake.

The problem the bill seeks to confront isn’t trivial, and nobody who has taken a serious look at the issue believes that Californians now buy enough earthquake insurance. Although nearly all seismologists predict that existing stresses along the San Andreas Fault make “the Big One” almost inevitable sometime in the next few decades, the percentage of Californians with earthquake insurance has declined since the last major quake struck in 1994.